Commercial Real Estate Market Outlook

Total U.S. commercial property transaction volume for the first three months of 2017 was $95 billion, down 18% from the same period in 2016 according to Real Capital Analytics (“RCA”) primarily due to a drop in portfolio sales. All primary property sectors, except industrial, showed a decrease in sales volume. Average capitalization rates for the major property sectors were mixed, with multifamily and industrial rates slightly lower and retail and office rates slightly higher in comparison to end of year 2016 averages.

According to CBRE Econometric Advisors (“CBRE-EA”), vacancy rates for the industrial, multifamily, and office sectors increased slightly during the first quarter, while vacancy for the retail sector remained unchanged.

Multifamily – At the end of the first quarter of 2017, the national vacancy rate for multifamily properties was 5.0%, up from 4.9% in the fourth quarter and 30 basis points higher than the rate from one year ago. Vacancy is likely to increase near term due to new supply though most markets should firm in a few quarters as new deliveries are reduced.

Retail – The national retail vacancy rate was unchanged during the first quarter of 2017 at 10.1% as rising home prices are providing favorable conditions for consumer spending growth.

Office – As of March 31, 2017, the national office vacancy level was 13.0%, up 10 basis points from the fourth quarter 2016. Both downtown and suburban vacancy rates showed slight vacancy increases in the first quarter.

Industrial – The national industrial vacancy level posted an increase for the first time since 2010 after remaining the same or decreasing for 27 straight quarters. The vacancy rate rose by 10 basis points, to 8.0% in the first quarter given a steady flow of new supply in several markets.

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